Life cover within superannuation needs standard definitions and other tougher rules to protect policyholders, the Australian Lawyers Association (ALA) says in a submission to the Productivity Commission.

Default cover in the $2 trillion super sector is essential to addressing the insurance gap, but the current set-up has room for improvement, it says.

“The ALA supports having default insurance as a part of superannuation. However, there is a need to tighten regulation so the insurance provides meaningful benefits to policyholders.”

It wants standard definitions for all insurance provided via super, with an onus on the insurer or super fund to notify policyholders when there are deviations from the terms.

The ALA says insurance premiums’ impact on retirement income can be mitigated by ensuring they adequately reflect the level of cover offered from the outset, rather than seeking to reduce coverage at point of claim through exclusions such as pre-existing conditions.

And auto-consolidation and auto-cessation should be subject to a no-disadvantage test, and should not occur without ensuring the policyholder is aware of the step, what the implications might be and how they can avoid it.

The Productivity Commission is examining the efficiency and competitiveness of the super system. It is expected to release a draft report in January.